How To Start A Business In Spain

Spain is known for its vibrant culture, great food scene, low cost of living and growing economy, making it an attractive place to start a business.

But starting a business in Spain isn’t just about getting the right paperwork together. In order to open a successful business, entrepreneurs will need to have a solid understanding of working culture, a strong business plan and sometimes some capital too.

Here, we take you though a step by step guide, explaining what you need to consider before opening a business in Spain and how to do it.

What Is It Like To Live In Spain?

If you are thinking of starting a business in Spain, it’s very likely that you are planning to move there. However, there are a few things to take into consideration before moving. For example:

Language

Whilst most big cities in Spain will have a population that speaks English, learning Spanish is one of the best ways to ensure you integrate into the community you are in.

From a business perspective, this is especially useful for networking and customer engagement – so it’s definitely a good skill to learn.

The Cost Of Living

Spain has a relatively lower cost of living than many areas in Western Europe. Like with most countries, the biggest hubs – Madrid and Barcelona, are the most expensive, with rural areas being more affordable.

According to Moving2Madrid, the cost of a 1 bedroom apartment in the city centre is over €1,000. Whilst this might be on the pricier side, produce in general is inexpensive, as is public transport, making it an easy and affordable country to live in.

The Economy

The European Commission recorded 5.8% economic growth in 2022, with the economy expected to continue expanding by around 2.1% in 2024.

Unemployment has also been decreasing, reaching 12.1% in 2023 and is projected to fall further. However, there are still challenges like high public debt. Whilst the government is making efforts to reduce it, it may still have a knock on effect on tax rates.

Business Visas For Non-EU Citizens

If you are not an EU citizen, you will need a work permit to start a business in Spain. You will have to apply for this at the Spanish embassy in your home country.

For this process, depending on the type of business you want to open, you may need to show proof of a business plan. After five years of living in Spain you can apply for permanent residency, which means you won’t need a work permit anymore.

A Step-by-Step Guide To Starting A Business in Spain

So you’ve decided to start a business in Spain, now it’s time to go through all the processes to get it up and running. This includes:

1. Choosing Your Business Structure

The first step is to decide on the type of legal business structure you want to register under. The most common business structures are:

• Sole Trader (Empresa Individual): Easy to set up with no minimum investment needed, but you will be personally responsible for paying taxes and any debts.
• Limited Liability Company (Sociedad Limitada, SL): A common choice for businesses that are expecting to make over €60,000 per year. Particularly attractive as it only requires an investment of €3,000.
• Public Limited Company (Sociedad Anónima, SA): Better for larger businesses as it requires a minimum investment of €60,000. However, it allows for the sale of stocks and shares.
• Branch Office or Subsidiary: If you already have a company abroad and want to expand into Spain, opening a branch is an easy way into Spain. However, the person running the business will need to have a Spanish work permit.

2. Apply For A Foreigner’s Tax Identification Number (NIE)

Before you can legally start a business in Spain, you must have a Número de Identificación de Extranjero (NIE).

This number is important for all finances, including opening a bank account and paying tax. You can apply for an NIE at a Spanish consulate in your home country or at a police station in Spain.

3. Register Your Company Name

After you have your NIE number, you’ll need to register your business’ name.

To do this, you have to choose a unique company name. You will need to send 3 name options to the Corporate Register of Spain (Registro Mercantil), who will usually approve one of the 3. This process typically takes 2-3 days.

4. Open A Business Bank Account

Once your company name is approved, you will need to open a business bank account in Spain. If you are opting to open a SL or SA business, you will need to deposit the minimum capital into the account.

Once that has been done, the bank will issue a certificate, verifying that the deposit has been made.

5. Draft And Sign The Deed of Incorporation

Next, you need to draft the Deed of Incorporation, which lays out all the company’s details, such as its name, office address, shareholders, and capital invested.

This document must be signed before a notary in public. During this process you will need:

• Your NIE
• Certificate from the Mercantile Registry
• Proof of bank deposit

Then, the notary will register the company in the Company Registry. This step usually takes 3 weeks.

6. Get A Corporate Tax Identification Number (CIF)

Once your company is registered, you will need to get aa Certificado de Identificación Fiscal (CIF), which will be your company tax identification number. This can be done at your local tax office.

7. Make Sure You Have Any Important Permits

Depending on the nature of your business , you may need extra licenses or permits.

Examples of these include health and safety permits for restaurants or other special industry licences.

Understanding Spanish Tax

One of the big benefits of Spain is its reduced tax for startups, making it an attractive destination for new businesses. The general corporate tax rate is 25%, but startups are able to get a reduced rate of 15% on their first €300,000 of taxable profit for the first two years.

The Value Added Tax (IVA) in Spain operates similarly to a sales tax, with a standard rate of 21%. However, some goods and services, such as food and books, have reduced rates of 10% or even 4%. Businesses registered for VAT must charge it on sales and file regular returns, but they can also reclaim VAT paid on business purchases.

Employing Staff In Spain

Spain has strict employment laws, so if you are thinking of hiring staff, it’s important to know them.

Employees generally work 40 hours per week and receive 14 payments per year (12 monthly salaries plus two bonuses). They are also entitled to 30 days of paid leave every year. The minimum wage is €1050 per month based on 14 payments a year.

Should You Start A Business In Spain?

Starting a business in Spain can be a lengthy process, but it’s certainly worth it.

Make sure you speak to a professional to ensure you have all the documents and information for an easy process. With the right guidance, starting a business in Spain can be a great opportunity to access a growing and exciting European economy.